Analysts at Canaccord have been relatively bullish on the yellow metal since mid-spring but they have been waiting for the right time to jump in into the marketplace. In a May 29 report, they said that they were expecting to see higher gold prices in the second half of the year, when the gold market traditionally performs better.

However, the analysts upgraded the gold market to outperform from neutral on June 18, following a bigger-than-expected increase in the U.S. Consumer Price Index.

Martin Roberge, managing director of the firm’s North American portfolio strategy, cautioned that the firm’s upgrade does not mean that this is the start of a new bull market for the yellow metal, but that they see this as an opportunity to jump into a bear-market rally.

“We see this more as a tradable opportunity,” he said. “Every bull market starts with a bear-market rally but we have to get their first.”

Because of rising inflation expectations, Roberge said, in the medium-term, he sees potential for gold to reach its 200-week average around $1,500 an ounce

“We believe the Fed is cornered,” he said.

In the same way that the Federal Reserve dropped its unemployment target of 6.5% as part of its forward guidance, he said that the central bank will eventually have to abandon its 2% inflation target to promote economic growth.

“If the Fed is willing to take an inflation risk, investors should buy inflation-protection hedges,” he said. “Inflationary pressures fuel inflation expectations, two positive drivers for the price of gold.”

Consumer price pressures rose significantly in May, according to data released by the U.S. Department of Labor. On June 17, the department said that annual non-seasonally adjusted headline CPI rose to 2.1%. The core index, which strips out volatile food and energy prices, rose to 2.0% on an annual non-seasonally adjusted basis, hitting the Fed’s inflation target.

On June 19, following the Federal Reserve’s monetary policy meeting, Fed Chair Janet Yellen, during her press conference, said that the committee was committed to maintaining its inflation target but dismissed the latest CPI numbers as “noise.”

However, Roberge said Yellen’s attempt to talk down inflation is not working. Increasing demand for Treasury Inflation Protected Security bonds is an indication that investors are already trying to protect themselves against the expectations of higher inflation risks.

It is those expectations that will help they yellow metal, he added.

“We don’t even need to actually see higher inflation. We just need to see the risk,” he said. “For those who remember, this looks like 1993 all over again.”

Inflation expectations during that time forced the Fed to hike interest rates in 1994.

It is not just the Federal Reserve that is talking down inflation. The Canaccord report noted that central banks worldwide are trying to “reflate before a global bear market in bonds renders their easing policies impotent.”